The Information Content Effect Implies That Stock Prices Will Rise

question 31

Multiple Choice

The information content effect implies that stock prices will rise when dividends are increased provided that the dividend increase:

• A)is denoted as a one-time event.
• B)causes stockholders to increase their expectations of future cash flows.
• C)is greater than the average historical dividend increase.
• D)is substantial in both dollar amount and percentage terms.
• E)is combined with a stock repurchase.

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Definitions:

Variable Costing

An accounting method that includes only variable production costs in product costs, excluding fixed overhead.

Absorption Costing

An accounting strategy that considers every manufacturing expense, including direct materials, direct labor, and overhead costs (both variable and fixed), in determining a product’s cost.

Income Statement

A financial statement that shows a company's revenue, expenses, and profits over a specific period, usually a fiscal quarter or year.

Direct Labor

The labor costs directly associated with the production of goods, often calculated as wages paid to workers or hours worked.